Category: Know Your MLC

Are You Better Off Today Than You Were Five Years Ago? Selected comments on the MLC Redesignation: Abby North, North Music Group

The Copyright Office is soliciting public comments about how things are going with the MLC to help the Office decide whether to permit The MLC, Inc. to continue to operate the Collective (see this post for more details on the “redesignation” requirement). We are impressed with the quality of many of the comments filed in the “Initial Comments” at the Copyright Office. As there will be an opportunity to comment again, including to comment on the comments, we will be posting selected Initial Comments to call to your attention. You can read all the comments at this link. If you are hearing about this for the first time, you have until June 28 to file a “reply comment” with the Copyright Office at this link.

You will see that there is a recurring theme with the comments. Many commenters say that they wish for The MLC, Inc. to be redesignated BUT…. They then list a number of items that they object to about the way the Collective has been managed by The MLC, Inc. usually accompanied by a request the The MLC, Inc. change the way it operates.

That structure seems to be inconsistent with a blanket ask for redesignation. Rather, the commenters seem to be making an “if/then” proposal that if The MLC, Inc. improves its operations, including in some cases operating in an opposite manner to its current policies and practices, then The MLC, Inc. should be redesignated. Not wishing to speak for any commenter, let it just be said that this appears to be a conditional proposal for redesignation. Maybe that is not what the commenters were thinking, but it does appear to be what many of them are saying. Perhaps this conditional aspect will be refined in the Reply Comments.

For purposes of these posts, we may quote sections of comments out of sequence but in context. We recommend that you read the comments in their entirety. Today’s featured comment is by Abby North, who owns the independent music publisher and administrator North Music Group. Abby was kind enough to participate as a panelist at the 3rd Annual Artist Rights Symposium that David hosts at the University of Georgia Terry College of Business, and also testified at the House Judiciary Committee IP Subcommittee hearing held in Nashville to grade the MLC, Inc. (read Emmanuel Legrand’s reporting on that hearing at this link).

Abby has a number of ideas about meaningful changes that the MLC, Inc. ought to make to its operations and its approach to its fundamental job–timely and accurately accounting for all the money it receives.

Read Abby’s full comment at this link.

MLC BUSINESS RULES THAT CONTRADICT LAW
During the IP Subcommittee hearing held by Chairman Issa,6 the Chairman cautioned MLC, Inc. CEO Kris Ahrend, “…no question at all, what you’ve been making looks a lot like rules.”

The US copyright law permits authors or their heirs, under certain circumstances, to terminate the exclusive or non-exclusive grant of a transfer or license of an author’s copyright in a work. The ability to recapture rights via the United States copyright termination system truly provides
composers, songwriters and recording artists and their heirs, a “second bite of the apple.” Many of my clients exercise this right and subsequently become the original publisher in the United States.

The MLC had made a unilateral determination that rights held at the inception of the new blanket license might remain, in perpetuity, with the original copyright grantee. The MLC initially ignored that the derivative work exception does not apply in the context of the mechanical blanket license.

Fortunately, the US Copyright Office stepped in to clarify that the appropriate payee under the mechanical blanket license to whom the MLC must distribute royalties in connection with a statutory termination is the copyright owner at the time the work is used. When The MLC envisions a new policy, members should be provided a mechanism to provide input related to this policy, prior to it being adopted.

Members must be given a greater voice in business rules and operations of The MLC. Hands-on music publishing administrators have deep insights into workflows, efficiencies and UI/UX. Members need to be consulted with and given opportunities to drive the future of The MLC’s
website and technologies.

The MLC has made unilateral decisions regarding how it treats public domain works. It invoices the DSPs for streams of recordings that embody these public domain works, but no publisher is entitled to these royalties. That means the MLC may collect money it may not pay out. What rule gives The MLC the right to collect but not distribute?

COMMITMENT TO ISWC AS GLOBALLY UNIQUE IDENTIFIER FOR MUSICAL
WORK
Recently, the PRS (the UK-based Performance Rights Organization) completed a proof of concept that allowed record labels to request assignment of an ISWC to identify a musical work embedded in that label’s recording.

This proof of concept provides a necessary step in helping CMOs identify musical works, contributing parties and recordings of these works.

It also firmly demonstrates the global CMO ecosystem’s commitment to the ISWC as the globally unique identifier for the musical work. Every music publisher and every CMO…other than The MLC…relies on the ISWC to identify a musical work.

Instead, The MLC relies on the HFA Song Code, now also known as the MLC Song Code. The only societies in the world that use these codes are HFA and The MLC. Every other society identifies musical works with an ISWC, which unlike the HFA Song Code or MLC Song Code,
functionally acts as a bridge to the International Party Identifier (IPI) and now, the International Standard Recording Code (ISRC).

For The MLC to some day truly be the gold standard in CMOs, it must follow the rest of the world’s lead and require and include the ISWC whenever the ISWC exists. The MLC Song Code may be used as a disambiguator, but it must be used in conjunction with an ISWC. This is how the other societies work: they have their own proprietary identifier, which accompanies the ISWC to allow positive identification of works.

In addition to ISWC as the work identifier shared by the world’s music publishing and rights management community, IPI is the global identifier for the songwriter and publisher. The MLC must commit to including the IPI for any writer or publisher that has been assigned an IPI.

SPEED OF CLAIMING AND MATCHING
According to The MLC in its redesignation comments, “Finally, The MLC has already established itself as a leader in the industry, setting high standards for speed, volume, transparency, efficiency, outreach and member support.”

As of this writing, works I claimed manually in the claiming portal 73 days ago still have not been processed.

Unless I am misunderstanding the process, this means The MLC has already missed two distribution periods.

This is too much time. If there is an issue with the claims, there should be some human communication from The MLC explaining the issues.

If there are no issues, what could possibly be the cause of such a delay?

The oversight body must provide guidelines for The MLC regarding reasonable times from delivery of a match or claim by a member to processing by The MLC.

I also recommend the addition of an interface in the MLC portal for communication between The MLC and the member. For example, if every time I log in, I see a red flag in the interface indicating action is required on my part, I could potentially assist in speeding up the time The MLC takes to process my data. I also would be aware of any potential issues.

SONGWRITER PORTAL
The MLC’s website says it has distributed to “publishers and songwriters.” However, it must be clarified that the only songwriters that directly receive royalties from The MLC are selfpublished, self-administered songwriters that a) are aware of The MLC; b) have become members; and c) have delivered data to The MLC regarding their works and recordings of their works.

Songwriters that are either published or administered by a publisher have no mechanism with which to deliver corrections or missing data regarding their works. Instead, a songwriter that may have had one or many previous deals typically has no relationship with the previous publishers. Even songwriters in current publishing deals may not be able to get their calls returned much less convince their publishers to add or correct data in a timely manner.

Consequently, as many advocates have suggested since the roundtables that occurred prior to the inception of The MLC, The MLC must provide a portal within its website for published and/or administered songwriters to deliver data regarding their works. This data must then be reviewed by The MLC for accuracy, and then The MLC must communicate with the publishers to confirm
accuracy and add the missing or corrected data to the public portal.

It is simply unfair that songwriters have no way to guarantee The MLC has the necessary data to pay these songwriters’ publishers if they are willing to do the matching work at their own expense.

According to the USCO’s website FAQs regarding Title 1 of The Musical Works Modernization Act, “Once established, the MLC will establish and administer a process by which copyright owners can claim ownership of musical works (and shares of such works).” In fact, even though an administered songwriter is the legal copyright owner of his/her musical works, The MLC provides no process by which that songwriter/copyright owner can claim ownership of musical
works.

OVERCLAIMS TOOL
The MLC recently added an Overclaims Tool – only for registrations made within the last 90 days. If you submit a registration and it conflicts with a work that’s older than 90 days, that conflict will not appear in your portal.

According to The MLC:

“Please note: A work can only go into overclaim if shares are added to the
work within 90 days of the work’s registration, based on the “Creation Date”
in the work details.

If you are attempting to claim shares over 100% on a work that was created
more than 90 days prior, you will need to reach out to The MLC Support
team here.”

As a publisher/administrator of works registered decades ago, how would I know if someone has attempted to claim my legacy work and created an overclaim?

I do not recall receiving any announcement seeking publishers to participate in working groups to provide input related to the Overclaims Tool. Experienced hands-on administrators should be given the opportunity to provide insights into functionalities of proposed additions to the MLC portal prior to development of the technology.

by thetrichordist

Are You Better Off Today Than You Were Five Years Ago? Selected comments on the MLC Redesignation: Spirit Music Group

The Copyright Office is soliciting public comments about how things are going with the MLC to help the Office decide whether to permit The MLC, Inc. to continue to operate the Collective (see this post for more details on the “redesignation” requirement). We are impressed with the quality of many of the comments filed in the “Initial Comments” at the Copyright Office. As there will be an opportunity to comment again, including to comment on the comments, we will be posting selected Initial Comments to call to your attention. You can read all the comments at this link. If you are hearing about this for the first time, you have until June 28 to file a “reply comment” with the Copyright Office at this link.

You will see that there is a recurring theme with the comments. Many commenters say that they wish for The MLC, Inc. to be redesignated BUT…. They then list a number of items that they object to about the way the Collective has been managed by The MLC, Inc. usually accompanied by a request the The MLC, Inc. change the way it operates.

That structure seems to be inconsistent with a blanket ask for redesignation. Rather, the commenters seem to be making an “if/then” proposal that if The MLC, Inc. improves its operations, including in some cases operating in an opposite manner to its current policies and practices, then The MLC, Inc. should be redesignated. Not wishing to speak for any commenter, let it just be said that this appears to be a conditional proposal for redesignation. Maybe that is not what the commenters were thinking, but it does appear to be what many of them are saying. Perhaps this conditional aspect will be refined in the Reply Comments.

For purposes of these posts, we may quote sections of comments out of sequence but in context. We recommend that you read the comments in their entirety.

Today’s featured comment is from the well-regarded independent music publisher Spirit Music Group. Spirit makes a number of comments about important issues with the MLC, Inc.’s handling of metadata and other operational issues. If you are not immersed in metadata issues, it is easy to blow past these comments such as the MLC making data available in the common csv format (i.e., not only DDEX) is actually a serious complaint about a significant operational issue.

While you have to put Spirit down as an unambiguous supporter of redesignation, it is important to focus on how best to get the MLC, Inc. to implement the many commenters’ operational suggestions. We will see some of these comments confirmed with other commenters.

We would also point out a theme that will come up repeatedly–The MLC, Inc. knows who to take care of and who to respond to quickly. That is not the same thing as having methods and systems that take care of all members which the MLC can certainly afford given the tens of millions of dollars that the services spend on The MLC, Inc.

[T]he MLC has certainly met the minimum responsibilities under the MMA and has endeavored to provide additional functionality so rightsholders can receive their entitled royalties from DMS and has completed significant development in a short period. They are very receptive of our concerns and respond promptly and clearly. We look forward their continued development.

3:II.B. Member Tools
1. Development and Implementation of Tools and Functionality
The implementation of the Matching and Claiming tools and offering the bulk data (at a cost to the recipient) gives rightsholders the visibility to identify omissions in payments; These tools are the first offered by a CMO in the United States and should set an example to the others.

For publishers with large catalogs, who are not one of the majors like ourselves, have the greatest obstacles. We represent significant works by The Who, Chicago, Billy Squier, Salt N Peppa, and many others. While the Matching and Claiming tools are great for self-published writers and the bulk data for majors, indie publishers do not have the means to maximize the use of these resources. We hope the MLC offers improvements to extract data in csv format from the Matching and Claiming tools.

We would also like to see more details in Match History to understand why certain claims are rejected.

2. Matching Methodology
The MLC still uses the ISRC as the primary identify for matching. Expanding the identification process using song titles and CISAC codes, i.e., the IPI and ISWC can enhance matching, improve results, and reduce unmatched recordings.

Adjustments: The MLC’s adjustment policy does not allow for debits and credits of rightsholders in the event of an error. Additionally, credits to the entitled rightsholder are not delivered unless the funds are received from the party paid in error. CMOs around the world have policies in place to handle adjustments and the MLC should have similar procedures in place.

Criterion 3:IV. Investments in Resources and Vendor Engagement
3:IV.B. Subpplemental Matching Network
The USCO asks the MLC to “…provide additional information about these (Blokur, Jaxsta, Pex, Salt, SX Works) relationships, including the specific functions that they perform, or have been asked to perform, the vendors’ relevant experience with clients and projects involving similar scale and type, or their industry-specific knowledge.” The MLC only satisfies a portion of this request by providing details about each of these companies functions. However, it does not provide the tasks they have been asked to preform or how the MLC plans to use these companies to improve the royalties that will ultimately be paid to the rightsholders.

Read the entire comment at this link.

by Trichordist Editor

Are You Better Off Today Than You Were Five Years Ago? Selected comments on the MLC Redesignation: American Association of Independent Music (A2IM)

The Copyright Office is soliciting public comments about how things are going with the MLC to help the Office decide whether to permit The MLC, Inc. to continue to operate the Collective (see this post for more details on the “redesignation” requirement). We are impressed with the quality of many of the comments filed in the “Initial Comments” at the Copyright Office. As there will be an opportunity to comment again, including to comment on the comments, we will be posting selected Initial Comments to call to your attention. You can read all the comments at this link. If you are hearing about this for the first time, you have until June 28 to file a “reply comment” with the Copyright Office at this link.

You will see that there is a recurring theme with the comments. Many commenters say that they wish for The MLC, Inc. to be redesignated BUT…. They then list a number of items that they object to about the way the Collective has been managed by The MLC, Inc. usually accompanied by a request the The MLC, Inc. change the way it operates.

That structure seems to be inconsistent with a blanket ask for redesignation. Rather, the commenters seem to be making an “if/then” proposal that if The MLC, Inc. improves its operations, including in some cases operating in an opposite manner to its current policies and practices, then The MLC, Inc. should be redesignated. Not wishing to speak for any commenter, let it just be said that this appears to be a conditional proposal for redesignation. Maybe that is not what the commenters were thinking, but it does appear to be what many of them are saying. Perhaps this conditional aspect will be refined in the Reply Comments.

For purposes of these posts, we may quote sections of comments out of sequence but in context. We recommend that you read the comments in their entirety.

Today’s featured comment is from A2IM, the American Association of Independent Music. You can read the entire comment here. A2IM raises some good points including suggesting that the redesignation be conditioned on The MLC, Inc. meeting beneficial targets. We have emphasized parts of the quote for impact but that emphasis is not in the original.

Distribution of Unmatched Royalties
A2IM is deeply concerned with the processes around the so-called royalty “black box” and finds the present searchability of unmatched royalty data to be insufficient. The Copyright Office should consider conditioning MLC redesignation on further delay in the distribution of these funds, presently estimated at over $300 million, until the MLC fully implements improvements to the system that result from this periodic review.

Under the Act and subsequent regulation, if the MLC is unable to locate the rightful copyright owner of a particular work, the MLC will deposit accrued but undistributed royalties in the black box, and after three years, the funds may be released to music publishers based on market share. A2IM strongly supports all efforts to fully distribute digital audio mechanical royalties to rights holders, and commends the MLC for seeking to improve the enormous amounts of unmatched royalties present at the time of the Act because the DSPs were not able to match and pay to the respective copyright owners.

The distribution of unmatched royalties, however, currently follows a dubious formula. This policy clearly benefits the major music publishers and penalizes smaller songwriters/publishers. Failure to match occurs for numerous reasons, but many are related to scale. Lesser-known songs from genres with less broad commercial appeal, songs with titles in foreign languages, and songs tied to digital files with less robust data all can lead to unmatched royalties, and all these factors are more likely to occur with musical works from the independent sector, and from publishers with smaller market share. At present, there remain too few options and too many hurdles for matching and claiming works, meaning that barriers to entry in freeing royalties from the black box pool persist to an unacceptable extent.

Furthermore, the current matching tool is not versatile enough to effectively match many titles, leaving a significant number of songs unmatched and contributing royalties to the black box. The present system fails to account well for partially matched songs, meaning instances of works authored by multiple songwriters represented by multiple publishers matched to one or more entities with royalty rights, but not to all such creators. The MLC often cites numbers of matched royalties without specifying the percentage of titles that are fully matched versus partially matched. It is crucial for the MLC to provide clear statistics on fully matched, partially matched, and unmatched titles to ensure transparency and build trust among rights holders.

There are also many instances of royalties being mismatched, and there is no easy recourse for rights holders to resolve these issues. The MLC must acknowledge this problem and establish a straightforward process for rights holders to report and correct mismatches. Moreso, the MLC must invest in improving the matching tool to enhance its accuracy, efficiency, and ease of use so that those most impacted (predominantly independent artists and writers) can claim their royalties.

Addressing unmatched royalties requires an all-hands-on-deck approach. Many legacy songwriters suffer because their publishers do not prioritize entering or updating relevant data. One easy improvement would be for the MLC to create a mechanism providing songwriters with recourse in this situation.

by thetrichordist

Are You Better off Today Than You Were Five Years Ago? Selected comments on the MLC Redesignation: Monica Corton

The Mechanical Licensing Collective has its operations and functions reviewed every five years by the Copyright Office. That review is required by Title I of the Music Modernization Act as written by the lobbyists. The Copyright Office noticed the first of these five year reviews on January 30.

The statutory purpose of the period review is so that Congress, in the person of the Copyright Office, can determine whether the operators of the Mechanical Licensing Collective who the Copyright Office appointed (or “designated”) should be permitted to continue for another five years. If the Copyright Office determines that the operators of the Collective will do a good job in the next five years, the head of the Office may reward them with the equivalent of a valuable new government contract or a “redesignation”.

The current operators of the Collective are The MLC, Inc., but there is nothing that requires the Office to allow The MLC, Inc. to continue being the mechanical licensing collective–the the Collective and The MLC, Inc. are not the same thing. Be clear that the entity that is being considered to be “redesignated” is The MLC, Inc., not the Collective. The Collective is a statutory entity and The MLC, Inc. is the organization that is permitted by the Copyright Office to operate as the Collective. (That’s confusing because someone allowed The MLC, Inc. to take the same corporate name as the statutory entity which was probably an oversight by the Delaware Secretary of State if not the Copyright Office itself.)

The five year review is important because it is the only chance for songwriters and publishers as well as the public to comment on whether they support rewarding The MLC, Inc. with another five years of operations and the tens and tens of millions of dollars in operating costs and high salaries paid for by the users of the blanket license–the services themselves–in the conflict ridden process imposed on songwriters and publishers by the government.

For reasons known only to them, the Copyright Office has chosen to conduct this five year review as though it were any other rulemaking rather than engaging independent experts to conduct a technology, financial, operational, and personnel audit of The MLC, Inc. from top to bottom. That choice is presumably based on some guidance from somewhere, but would seem to inevitably substitute opinions–however astute–for an empirical review using at least industry experts with the power to compel answers if not managerial science.

While this rulemaking approach has the benefit of allowing the public to comment, it fails to offer independent expert review of the very thing that the Office is being asked to approve. Instead, that “redesignation” decision will be based on whether or not the public caught the “right” issues, expressed them the “right” way, and were able to communicate their ideas persuasively. Assuming the public even knew of the opportunity in the first place.

It must be said that if we are going to solicit opinions, the first opinion we would be interested in hearing is from the Copyright Office itself. The Register, after all, is the one making the redesignation decision, not the MLC, the DLC, or any one commenter. It seems that comments would be more compelling if informed by the Copyright Offices own views, including the opportunity to comment on the Office’s methodology. It doesn’t look like we will know about that one until the next step in the rulemaking. A “proposed redesignation” does not seem particularly apt, so we will look forward to finding out after the fact how a large chunk of songwriter income is to be managed.

We are impressed with the quality of many of the comments filed in the “Initial Comments” at the Copyright Office. As there will be an opportunity to comment again, including to comment on the comments, we will be posting selected Initial Comments to call to your attention. You can read all the comments at this link. If you are hearing about this for the first time, you have until June 28 to file a “reply comment” with the Copyright Office at this link.

You will see that there is a recurring theme with the comments. Many commenters say that they wish for The MLC, Inc. to be redesignated BUT…. They then list a number of items that they object to about the way the Collective has been managed by The MLC, Inc. usually accompanied by a request the The MLC, Inc. change the way it operates.

That structure seems to be inconsistent with a blanket ask for redesignation. Rather, the commenters seem to be making an “if/then” proposal that if The MLC, Inc. improves its operations, including in some cases operating in an opposite manner to its current policies and practices, then The MLC, Inc. should be redesignated. Not wishing to speak for any commenter, let it just be said that this appears to be a conditional proposal for redesignation. Maybe that is not what the commenters were thinking, but it does appear to be what they are saying. Perhaps this conditional aspect will be refined in the Reply Comments.

For purposes of these posts, we may quote sections of comments out of sequence but in context. We recommend that you read the comments in their entirety.

The first comment is by Monica Corton, the highly experienced and respected publisher. You can read her comment at this link.

The Top Unmatched Recording List
While I believe this list exists, I have never received an email asking me to review such a list. I recently learned that you could ask for the list, but it comes in the DDEX format (like the unmatched songs list) and as an independent publisher, I do not have the capability to change this to a CSV format. As I explained before, it can easily be converted to a CSV file if you have the
right software. I think that conversion from the DDEX format to the CSV format should be a service done by The MLC. Otherwise, the only people who can benefit from the Top Unmatched Recording List are the largest companies with the resources to convert this list.

Investment Policy
Why isn’t the investment policy made public and fully transparent to the membership? It is our money that they are investing, and I’d like to know the details as would many other publishers. Why did the board decide to not make the policy documents regarding investments available to the public?

IPI Number Use Not Mandatory
The MLC doesn’t require publishers to use IPI numbers of songwriters in their registrations. As a result, there are a lot of duplicate registrations at The MLC/HFA that never get linked together because different registrants used different names for the same writer (e.g. Eminem, Marshall Mathers) which creates different registrations for the same song. If IPI numbers for songwriters
were mandatory, this would clear up this problem.

Royalty Adjustments at The MLC
The MLC will not credit or debit a publisher for an incorrect royalty payment due to a change in registration unless they are directly responsible for the error. If you missed the snapshot because The MLC didn’t process a Catalog Transfer Form on time, the new publisher will not be credited, and it is their responsibility to contact the old publisher and get the incorrect royalty
payment paid between them rather than through The MLC. The MLC doesn’t consider a bad registration at HFA as the cause of an incorrect payment even though it is the HFA data that caused the incorrect payment. Every other PRO and CMO does internal debits and credits for incorrect payments and adjustments, especially when there is a transfer of a new catalog. The
minute The MLC is served notice of via a Catalog Transfer Form, all royalties should be put on hold until the transfer is confirmed and set up by The MLC.

by Trichordist Editor

The Consensus for Conditional Approval of The MLC, Inc. by the @CopyrightOffice

By Chris Castle

I am pleased to see that there is a consensus against more happy talk among commenters in The MLC, Inc.’s five year review of its operations at the Copyright Office. The consensus is an effort to actually fix the MLC’s data defects, rogue lawmaking and failure to pay “hundreds of millions of dollars” in black box royalties.  But realize this is not just the songwriter groups you would expect to see raising objections (discussed in excellent Complete Music Update post). It’s also coming from some commenters who you would not expect to see criticizing The MLC who may not come right out and say it, but are essentially proposing a conditional redesignation.

When did Noah Build the Ark? The Two Arguments for Conditional Approval

There is a significant group, and sometimes from unexpected corners, who fall into two broad camps: One camp is “approve The MLC, Inc. with post-approval conditions” that may lead to being disapproved if not accomplished until the next five year review rolls around.

The other camp, which is the one I’m in if you’re interested, is to spend some time now getting very specific. The specifics are about crucial improvements The MLC, Inc. needs to put into effect and payments they need to make. This would be accomplished by bringing in advisory groups of publishing experts, especially from the independent community, roundtables, other customary tools for public consultations. But–the redesignation approval would occur only after The MLC, Inc. accomplished these goals. 

Either way, the consensus is for conditions if not the timing. I’m not going to argue for one or the other today, but I have some thoughts about why delayed approval is more likely to accomplish the goals to make things better in the least disruptive way.

Remember, once The MLC, Inc. is approved, or “redsignated,” then all leverage to force change is lost. Why? Because if the last five years is any guide, exactly zero people will enforce the government’s oversight role and everyone knows it.

Putting operations-based obligations on The MLC, Inc. to be responsive to their members before they get the valuable approval preserves leverage and will force change one way or another, The reward for successfully accomplishing these goals is getting approved for another term (or the balance of their five year review). Noah built the Ark before the rain.

What if we fired them?

I’m actually pleased to see the consensus for conditional approval. Simply firing The MLC, Inc. would be disruptive (and they know it), mostly because the Copyright Office hasn’t gotten around to requiring that a succession plan be in place so that firing the MLC would not be disruptive.  That’s a failure of oversight. You can’t expect the MLC to make it easy to fire themselves.

The simple solution to this pickle is for the Copyright Office to make any redesignation conditioned upon certain fixes being accomplished on an aggressive time frame. I say aggressive because they’ve had five years to think about this; it shoudln’t take long to at least implement some fixes. But if we don’t make it conditional the MLC will lack the incentive to actually fix the problems.

A conditional approval would simply say that if the MLC cleans up its act, say in the next 24 months, then they will be officially redesignated. If they don’t, it’s on to the next after that 24 month deadline.

Conditional Approval

I have to say I was encouraged by the number of commenters who said that The MLC, Inc. needs some very definite performance goals. Many commenters said that those goals needed to be met in order for The MLC, Inc. to get approved for another five years until the next review. I’m not quite sure how you approve them for another five years with performance goals unless you are really saying what some commenters came right out and said: Any approval should be conditional. 

I think that means that the Copyright Office needs a plan with two broad elements: One, the plan identifies specific performance goals, and then two, establishes a performance timeline that The MLC, Inc. must meet in order for this current “redesignation” to become final.

That “conditional redesignation” would incentivize The MLC, Inc. to actually accomplish specific tasks like everyone else with a job. The timeline will likely vary based on the particular task concerned, but impliedly would be less than five years. There’s a very good reason to make the approval conditional; there’s just too much money involved. Other people’s money.

The Black Box

Every comment I read brings up the black box. Commenters raised different complaints about how The MLC, Inc. is managing or not managing the matching that is required for the black box distribution contemplated by Congress. They all were pretty freaked out about how big it is, how little we know about it, and the fact that the board of The MLC, Inc. is deeply conflicted because the lobbyists drafted an eventual market share distribution. Strangely enough, there’s every possibility that the market share distribution will happen, or could happen, right after the redesignation. Also known as losing on purpose in a fixed fight.

There’s an easy correction for that one–don’t do the market share distribution, maybe ever. 

The harsh but near certain fact is if there is an announced market share distribution of the black box, the MLC (and everyone involved) will be sued before the actual distribution. It almost doesn’t matter how clean it is. So why do it at all? The MLC is supposed to set an example to the world, right? (And we know how much the world loves it when Americans say that kind of thing.) What if we said that the market share distribution was just bloodlust by the lobbyists salivating over a really big poker pot? On reflection, it should be put aside particularly because Congress may not have been told how big the black box really was if anyone knew at the time. Ahem….what did they know and when did they know it?

The Interest Penalty

This actually goes hand in hand with another interpretation of the black box provisions of Title I of the MMA which requires the payment of compound interest for black box money to be paid by The MLC, Inc. to the true copyright owner. That compound interest accrues at the “federal short term rate” in effect from time to time (that rate is adjusted monthly and is currently 5.01%). MLC’s interest obligation accrues in an account set up for the true copyright owner’s benefit, not for the recipients of the market share distribution. 

Interest runs from the time the unmatched money is received by the MLC until it is matched and paid. There could easily be several different interest rates in effect if the unmatched royalties stay in the black box for months or particularly years. This concept is elaborated in a comment by the Artist Rights Institute. (And of course, why doesn’t the interest run from the time the black box is first held rather than the much later date that the unmatched is paid to the MLC?)

Title I requires this “penalty” the same way that it requires the statutory late fee which itself has been the subject of much negotiation. It is important to note that the word “penalty” does not appear in Section 115, but both the interest rate and the late fee are obviously “penalties” in plain English and in plain site. You don’t have to call it a thing a penalty in order for it to be a penalty. It doesn’t stop being a penalty just because the statute doesn’t define it as one, just like a large furry animal with big teeth, big claws, a loud roar and really bad breath who wants to eat you stops being a bear just because it doesn’t have a sign around its neck saying “BEAR”. Particularly when the furry animal has you by throat.

Align the Incentives

I have to imagine that a penalty of compound interest would incentivize both the MLC and the licensees who pay its bills to match that black box right quick. If a third party is paying the statutory interest penalty which is how it is now according to MLC CEO Kris Ahrend’s testimony to Congress (under oath), then there’s really no incentive for the MLC to pick up the pace on matching and there’s even less incentive for the licensees to make them do it.

It makes sense that the MLC is to maintain an account for each copyright owner (or maybe for each unmatched song since the copyright owner is not matched), so it only makes sense that these accounts and compound interest would be maintained on the ledger of the MLC rather than in a third party bank account, much less a mutual fund. It would be pretty dumb to just lump all the money into one account and run compound interest on the whole thing that would have to be disaggregated and paid out every time a song is matched. Assuming matching was the object of the exercise.

Plus, there’s nothing in Title I that says that black box money has to be put in a bank account that accrues interest so that the MLC doesn’t have to pay this penalty for being slow. Again, the word “bank” does not appear in Section 115. It definitely doesn’t say a federally insured bank account, a bank in the Federal Reserve system, or the like–because the statute does not require a bank.  I would argue that if Congress meant for the money to be kept in a bank they would have said so.

Even so, I have to believe that if you want to an insurance company and said I will bring you the “hundreds of millions of dollars” if you write me a policy that will cover my interest expense and insure the corpus, somebody would take that business. If they can write derivatives contracts for fluctuations in natural gas futures in global energy markets, I bet they could write that policy or my name’s not Jeffrey Skilling.

William of Ockham Gets Into the Act

What makes a lot more sense and is a whole lot simpler is that Congress wanted to incentivize the MLC to match and pay black box royalties quickly. Congress established the compound interest penalty to add jet fuel to that call and response cycle following the jurisprudential theory of subsidiarity. 

That penalty is part of the normal costs of operating the MLC therefore should be paid as part of the administrative assessment, i.e., by the services themselves. If the MLC sits on the money too long, the services can refuse to cover the interest costs beyond that point and the MLC can then pass the hat to the board members who allowed that to happen.  Again, subsidiarity principles suggest that it is good government to create the incentive to fix a problem in the pocketbook of the one who is best positioned to actually get it fixed.

So everyone has a good incentive to clean out the black box. Brilliant lawmaking. I don’t think that’s such a bad deal for the services since they are the ones who sat on the money in the first place that produced the initial hundreds of millions of dollars for the black box. They got everything else they wanted in the MMA, why object to this little detail? Let’s try to hold down the hypocrisy, shall we?

There may be some arguments about that interpretation, but here’s what Congress definitely did not do and about which there should definitely not be an argument. Congress did not authorize the MLC to use the black box money as an investment portfolio. Nowhere in Title I is the MLC authorized to start an investment policy or to become a “control person” of mutual funds. Which they have done.

That investment policy also raises the question of who gets the upside and who bears the downside risk. If there’s a downturn, who makes the corpus whole? And, of course, when the ultimate market share distribution occurs, who gets the trading profits? Who gets the compound interest? Surely the smart people thought of this as part of their investment policy.

The Key Takeaway

You may disagree with the Institute’s analysis about what is and isn’t a penalty, and you may disagree about putting conditions on redesignation, but I think that there is broad agreement that there needs to be a discussion about forcing The MLC, Inc. to do a better job. I bet if you asked, the Congress clearly did not see the Copyright Office’s role as handing out participation trophies or pats on the head. And that should not be the community’s goal, either. This whole thing was cooked up by the lobbyists and they were not interested in any help. That obviously crashed and burned and now we need to help each other to save songwriters today and in future generations. If not us, then who; if not now, then when; if not here, then where?

[A version of this post first appeared on MusicTech.Solutions]

by Trichordist Editor

MLC “ReUp” Proceeding Highlights Ownership Issues for Your Musical Works Database When You Correct To Collect?

Guest post By Chris Castle

Ever wonder who owns the registration data you have slaved to correct and recorrect at your own cost when you “Play Your Part” to “Correct to Collect” at the MLC?

Remember the sainted Music Modernization Act allowed the lobbyists a vehicle to create their mechanical licensing collective in the US that was going to solve all of Big Tech’s problems. The MMA, unsurprisingly, also gave Big Tech a brand new copyright infringement safe harbor arising out of the Spotify class actions. Generations of the children of lawyers and lobbyists will be put through college–thank you songwriters!

One of the few things Congress got right in Title I of the Music Modernization Act is the five-year review of the mechanical licensing collective. Or more precisely, whether the private company previously designated by the Copyright Office to conduct the functions of the Mechanical Licensing Collective (The MLC, Inc.) should have another five years to continue doing whatever it is they do.

Impliedly, and I think a bit unfairly, Congress told the Copyright Office to approve its own decision to appoint the current MLC or admit they made a mistake. This is yet another one of the growing list of oversights in the oversight. Wouldn’t it make more sense for someone not involved in the initial decision to be evaluating the performance of the MLC? Particularly when there are at least tens of millions of dollars changing hands as well as some highly compensated MLC employees, any one of whom makes more than the Copyright Royalty Judges. The MLC’s budget (paid by the services they oversee) was $32,900,000 in 2023 and will be $39,050,000 this year because, you know, the budget is indexed to inflation, just like streaming mechanicals…oh sorry. Not like streaming mechanicals.

Who Owns the Database?

What happens if the Register of Copyright actually fires The MLC, Inc. and designates a new MLC operator? The first question probably should be what is The MLC, Inc.’s plan for a hand off to a successor. But since that doesn’t exist, it instead should be what happens to the vaunted MLC musical works database and the attendant software and accounting systems which seem to be maintained out of the UK for some reason.

I actually raised this ownership question in a comment to the Copyright Office back in 2020. In short, my question was probably more of a statement: ‘‘The musical works database does not belong to the MLC or The MLC and if there is any confusion about that, it should be cleared up right away.” 

The Copyright Office had a very clear response:

While the mechanical licensing collective must ‘‘establish and maintain a database containing information relating to musical works,’’ the statute and legislative history emphasize that the database is meant to benefit the music industry overall and is not ‘‘owned’’ by the collective itself….Any use by the Office referring to the public database as ‘‘the MLC’s database’’ or ‘‘its database’’ was meant to refer to the creation and maintenance of the database, not ownership. [85 FR at 58172, text accompanying notes 30 and 31.]

So if the current operator of the MLC is fired, we know from the MMA and the Copyright Office guidance that one thing The MLC, Inc. cannot do is hold the database and its attendant systems hostage, or demand payment, or any other shadiness. These items do not belong to them so they must not assert control over that which they do not own. Neither does the database belong to any contractor if for no other reason than the MLC, Inc. cannot transfer to a contractor something that the MLC, Inc. doesn’t own in the first place.

Another thing that doesn’t belong to The MLC, Inc. is the hundreds of millions of black box money that the MLC, Inc. has failed to distribute in going on four years. I’ve even heard cynics suggest that the market share distribution of black box will occur immediately following The MLC, Inc.’s redesignation and the corresponding renewal of HFA’s back office contract which seems to be worth about $10 million a year all by itself.

What would also have been helpful would be for Congress to have required the Copyright Office to publish evaluation criteria for what they expected the MLC’s operator to actually do as well as performance benchmarks. Like I said, it’s a bit unfair of Congress to put the Copyright Office in the unprecedented position of evaluating such an important role with no usable guidance whatsoever. Surely Congress did not intend for the Copyright Office to have unfettered autonomy in deciding what standards to apply to their review of a quasi-governmental agency like the MLC? Yet Congress seems to have defaulted to the guardrail of the Administrative Procedures Act or some other backstop to sustain checks and balances on the situation.

But at least the ownership question is settled.

by Trichordist Editor

Bridgeport Music Files Notice of The MLC’s First Royalty Audit

[Editor Charlie sez: a royalty “audit” is a right of the song owner to look inside the books and records of the party paying royalties to confirm that all royalties were paid and that all royalties were paid correctly, usually during a specified period of time. This usually results in the song owner discovering an underpayment that would have gone unpaid without the audit.]

By Chris Castle

It is commonplace for artists to conduct a royalty examination of their record company, sometimes called an “audit.” Until the Music Modernization Act, the statutory license did not permit songwriters to audit users of the statutory license. The Harry Fox Agency “standard” license for physical records had two principal features that differed from the straight statutory license: quarterly accounting and an audit right. When streaming became popular, the services both refused to comply with the statutory regulations and also refused to allow anyone to audit because the statutory regulations they failed to comply with did not permit an audit. I brought this absurdity to the attention of the Copyright Office in 2011.

After much hoopla, the lobbyists wrote an audit right for copyright owners into the Music Modernization Act. However, rather than permitting copyright owners to audit music users as is long standing common practice on the record side, the lobbyists decided to allow copyright owners to audit the Mechanical Licensing Collective. At the expense of the copyright owner, of course, no matter how many mistakes the copyright owner discovered or how big the underpayment. This is consistent with the desire of services to distance themselves from those pesky songwriters by inserting the MLC in between the services and their ultimate vendors, the songwriters and copyright owners. The services can be audited by the MLC (whose salaries are paid by the services), but that hasn’t happened yet to my knowledge.

But the MLC has received what I believe is its first audit notice that was just published by the Copyright Office after receiving it on November 9. First up is Bridgeport Music, Inc. for the period January 1, 2021, through December 31, 2023. January 1, 2021 was the “license availability date” or the date that the MLC began accounting for royalties under the MMA’s blanket license.

2023-27554-bridgeport-audit-noticeDownload

Why Audit Now?

Bridgeport’s audit is wise. There are no doubt millions if not billions of streams to be verified. The MLC’s systems are largely untested, compared to other music users such as record companies that have been audited hundreds, if not thousands of times depending on how long they are operating. Competent royalty examiners will look under the hood and find out whether it’s even possible to render reasonably accurate accounting statements given the MLC’s systems. Maybe it’s all fine, but maybe it’s not. The wisdom of Bridgeport’s two year audit window is that two years is long enough to have a chance at a recovery but it’s not so long that you are drowned in data and susceptible to taking shortcuts. 

In other words, why wait around?

Auditing the Black Box

A big difference between the audit rules the lobbyists wrote into the MMA and other audits is that the MLC audit is based on payments, not statements. The relevant language in the statute makes this very clear (17 USC §115(d)(3)(L):

A copyright owner entitled to receive payments of royalties for covered activities from the mechanical licensing collective may, individually or with other copyright owners, conduct an audit of the mechanical licensing collective to verify the accuracy of royalty payments by the mechanical licensing collective to such copyright owner…The qualified auditor shall determine the accuracy of royalty payments, including whether an underpayment or overpayment of royalties was made by the mechanical licensing collective to each auditing copyright owner.

Royalty payments would include a share of black box royalties distributed to copyright owners. It seems reasonable that on audit a copyright owner could verify how this share was arrived at and whatever calculations would be necessary to calculate those payments, or maybe the absence of such payments that should have been made. Determining what is not paid that should have been paid is an important part of any royalty verification examination.

Systems Transparency

Information too confidential to be detected cannot be corrected.  It is important to remember that copyright owner audits of the MLC will be the first time an independent third party has had a look at the accounting systems and functional technology of The MLC. If those audits reveal functional defects in the MLC’s systems or technology that affects any output of The MLC, i.e., not just the royalties being audited, it seems to me that those defects should be disclosed to the public. Audit settlements should not be used as hush money payments to keep embarrassing revelations from being publicly disclosed.

Unsurprisingly, The MLC lobbied to have broadly confidential treatment of all audits. Realize that there may well be confidential financial information disclosed as part of any audit that both copyright owners and The MLC will want to keep secret. There is no reason to keep secrets about The MLC’s systems. To take an extreme example, if on audit the auditors discovered that The MLC’s systems added 2 plus 2 and got 5, that is a fact that others have a legitimate interest in having disclosed to include the Copyright Office itself that is about to launch a 5 year review of The MLC for redesignation. Indeed, auditors may discover systemic flaws that could arguably require The MLC to recalculate many if not all statements or at least explain why they should not. (Note that a royalty auditor is required to deliver a copy of the auditor’s final report to The MLC for review even before giving it to their client. This puts The MLC on notice of any systemic flaws in The MLC’s systems found by the auditor and gives it the opportunity to correct any factual errors.)

I think that systemic flaws found by an auditor should be disclosed publicly after taking care to redact any confidential financial information. This will allow both the Copyright Office and MLC members to fix any discovered flaws.

The “Qualified Auditor” Typo

It is important to realize that there is no good reason why a C.P.A. must conduct the audit; this is another drafting glitch in the MMA that requires both The MLC’s audited financial statements and royalty compliance examinations be conducted by a C.P.A, defined as a “qualified auditor” (17 USC § 115(e)(25)). It’s easy to understand why audited financials prepared according to GAAP should be opined by a C.P.A. but it is ludicrous that a C.P.A. should be required to conduct a royalty exam for royalties that have nothing to do with GAAP and never have. 

To be frank, I doubt seriously whether anyone involved in drafting the MMA had ever personally conducted or managed a royalty verification examination. That assessment is based on the fact that royalty verification examinations are one of the most critical parts of the royalty payment process and is the least discussed subject in the lengthy MMA; at the time, the lobbyists did not represent songwriters and tried very hard to keep songwriters inside the writer room and outside of the drafting room as you can tell from The MLC, Inc.’s board composition; and that the legislative history (at 20) has one tautological statement about copyright owner audits: ”Subparagraph L sets forth the verification and audit process for copyright owners to audit the collective, although parties may agree on alternate procedures.” Well no kidding, smart people. We’ll take some context if you got it.

As Warner Music Group’s Ron Wilcox testified to the Copyright Royalty Judges, “Because royalty audits require extensive technical and industry-specific expertise, in WMG’s experience a CPA certification is not generally a requirement for conducting such audits. To my knowledge, some of the. most experienced and knowledgeable royalty auditors in the music industry are not CPAs.” (Testimony of Ron Wilcox, In re Determination of Royalty Rates and Terms for Ephemeral Recording and Digital Performance of Sound Recordings (Web IV), Copyright Royalty Judges, Docket No. 14-CRB-0001-WR (Oct. 6, 2014) at 15.). 

I would add to Ron’s assessment that the need for “extensive technical and industry-specific expertise” has grown exponentially since he made the statement in 2014 due to the complexity and numerosity of streaming. I’m sure Ron would agree if he had a chance to revisit his remarks. But inside the beltway of the Imperial City, it ain’t that way and you can tell by reading their laws handed down by the descendants of Marcus Licinius Crassus. All accountants are CPAs, all accounting is according to GAAP, all the women are strong, all the men are good-looking, and all the children are above average and go to Sidwell Friends. In the words of London jazzman and club owner Ronnie Scott to an unresponsive audience, “And now, back to sleep.”

The “qualified auditor” defined term should be limited to the MLC’s financials and removed from the audit clauses. This was a point I made to Senate staff during the drafting of MMA, but was told that while they, too, agreed it was stupid, it’s what the parties wanted (i.e., what the lobbyists wanted). And you know how that can be. So now we sweep up behind the elephants in the circus of life. But then, I’m just a country lawyer from Texas, what do I know.

All praise to Bridgeport for stepping up.

This post first appeared on MusicTech.Solutions

by Trichordist Editor

Win Your Office Pool on MLC Salary Raises!

If you’re like us, you have an office pool on who will win the eagerly anticipated release of the MLC’s 2022 tax return! “Winning” in this case means who will get the biggest salary and bonus bump–for what, we’re not sure, but don’t that stop anything.

Based on the MLC’s 2020 tax return, these employees were the only ones disclosed:

But on the 2021 tax return, the MLC must have exceeded expectations so much that everyone got a raise and they staffed up! Nothing but blue skies on the sunlight uplands!

CEO Kris Ahrend went from a mere $566K a year base with a $57K bonus in 2020 to $603K base and an even bigger bonus in 2021. Ellen Truley also had a fantastic year with her base moving like a rocket from a mere $240K to $308K! During COVID!! And her bonus practically doubled. But for some reason Maurice Russell’s salary actually declined slightly from $236K to $235K, but maybe they pushed it into his bonus which rose from $22K to $25K.

But stay tuned for the 2022 results and maybe bet the trendline going up, because the MLC gets a statutory cost of living adjustment that is not based on performance! Just like streaming royalties they administer!

No wait–the MLC gets the cost of living adjustment not the songwriters, sorry. No, remember that songwriters are told that they will do better if the services do better on revenues. Not on the services’ stock price, but rather on revenues for people who never raise their prices but make millions on selling stock. Except for the physical royalty paid by the labels that agreed to give the songwriters they depend on a higher mechanical rate AND a cost of living bump. But these trillion dollar market cap Big Tech music users don’t ever include the real money in the rising tide that sinks all boats with the trickle down royalty. But we’re told to put it all on red and let it ride.

But we’re glad that the MLC employees are so well compensated and that their salaries are protected in the highest inflation in 40 years with that built-in inflation adjustment.

by Trichordist Editor